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It’s all about the ESG (and RSG): Southwestern Energy and Kinder Morgan stroke a deal for gas transportation

In order to further its commitment to reducing emissions across the natural gas value chain, Southwestern Energy Co. recently signed an agreement with Kinder Morgan Inc. for the transportation of responsibly sourced natural gas (RSG) to the Northeast markets. Tennessee Gas Pipeline, a subsidiary of Kinder Morgan, will be carrying out this notion since Nov.1.

The term "RSG" refers to natural gas that has been produced by a well and transported by companies whose operations have been independently verified for meeting certain environmental, social, and governance standards, including those relating to methane emissions.

Southwestern is currently one of the biggest producers of natural gas and natural gas liquids in the United States. The exploration, production, and development of natural gas, natural gas liquids, and crude oil from the nation's most prolific and unconventional gas fields found in the Appalachian and Haynesville shale basins are its primary business.

At the moment, the company is a leader of the pack when it comes to responsibly sourced gas. The fact that in 2017 Southwestern had already certified its first well as responsibly sourced through a partnership with Project Canary certainly contributes to its reputation a fair bit. Even more so, since then, Project Canary was expanded to include Southwesterns' entire Appalachian Basin natural gas production.

Morgan, on the other hand, is an energy infrastructure company, which provides pipelines and terminals for safe and clean transportation of natural gas, gasoline, crude oil, CO2, and other products, as well as for adequate storing of petroleum products and chemicals.

Yet, this partnership does not come as a surprise.

Southwestern's president and CEO, Bill Way, believes responsibly sourced gas is essential to providing a low-carbon energy future. And creating cleaner energy for customers throughout the United States and beyond is one of the company's goals as well as the purpose of this innovative agreement with Kinder Morgan.

In terms of annual electricity generation, the distribution of the RSG to the Northeast markets is expected to power the equivalent of about 100,000 homes while reducing greenhouse-gas emissions to the equivalent of removing 5,000 internal combustion cars off the roads.

Southwestern and Morgan are pleased with such an arrangement, not to mention that they will enjoy some good press coverage out of it as well.

According to Tom Martin, Morgans' president of natural gas pipelines, this is just one of several RSG initiatives currently underway and aligns splendidly with their commitment to minimize methane emissions associated with the production and transportation, storage, and distribution of natural gas.

The two companies are also founding members of the ONE Future Coalition, a group of 50 industry giants working together to reduce methane emissions across the Natural Gas value chain to 1% (or less) by 2025. But the coalition already registered a methane intensity number of 0.334% in 2019, beating its own target by 67% ahead of time. It proves that the natural gas industry can simultaneously provide much-needed long-term renewable energy and also minimize methane emissions.

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Your team’s ESG performance can be greatly improved applying the asset co-location analysis within upstream or midstream use cases. This has been a topic for a discussion at Rextag’s ‘Is ESG Improvement Next Door?’ webinar. We reviewed some cases like curbing gas flaring or renewable energy sourcing to power the fossil fuel infrastructure. Many combinations are available with access to the data Rextag provides on wells, acreages, power lines, substations, and such renewable infrastructure as wind turbines, methane landfills, etc.

TC Energy, the Canadian gas giant, recently announced its environmental, social, and governance goals, as well as emission reduction strategies. The company aims to become 100% emission-free by 2050 while promising to cut greenhouse gas emissions intensity from its operations by 30% by 2030 as an interim measure.

Shareholder’s payout target was increased by 50% after the largest U.S. independent oil producer surpassed Wall Street’s earnings estimates on growing energy prices, said Houston-based Conoco Phillips Co. on Aug. 4. Due to Western sanctions on major producer Russia throttling energy supply amid a rebound in demand from pandemic lows, oil and gas #prices have soared. Crude has been trading more than 25% higher since the start of the year and results also benefited from high natural gas prices. Meanwhile, shares were down a fraction, to $91.03, in early trading but are up about 26% year to date. Conoco Phillips stated, that the average price obtained for a barrel of oil and gas accelerated 77% from a year earlier to $88.57. The company acknowledges that it has not hedged any of its oil and gas sales to make the most of higher market prices. The capacity of 1.69 million boe/d was in line with Wall Street estimates, however, the company expected the current quarter’s output would be between 1.71 million and 1.76 million boe/d.

California oil joint venture, Aera Energy, of Exxon Mobil Corp. and ShellPlc is being sold to German asset manager IKAV, according to the agreement of Sept. 1. Shell noted that the sale of its 51.8% membership interest in Aera Energy is for a total consideration of about $2 billion in cash with additional contingent payments based on future oil prices, subject to regulatory approval. However, the total transaction value was not disclosed. Being one of California’s largest oil and gas producers, Aera Energy accounts for nearly 25% of the state’s production. The sale by Exxon Mobil and Shell ends a 25-year-long partnership in California, meanwhile, it persists a streak of divestments of mature oil and gas properties by the two supermajors. Aera Energy LLC operates about 13,000 wells in the San Joaquin Valley in California, producing oil and associated gas. In 2021, Aera took out about 95,000 boe/d. Exxon Mobil’s interests in the Aera oil-production operation in California contained a 48.2% share of Aera Energy LLC and a 50% share of Aera Energy Services Co. held by Mobil California Exploration & Producing Co. Moreover, Exxon Mobil affiliates have signed a separate agreement for the sale of an associated loading facility and pipeline system. The sale effectively ends Shell’s upstream position in California. The company reported that the divestiture is valued to result in a post-tax impairment of $300 million to $400 million, subject to adjustments.

The completion of the merger between Centennial Resource Development Inc. and Colgate Energy Partners II LLC happened on Sept. 1, sealing the debut of Permian Resources Corp., which is considered the largest pure-play E&P company in the Delaware Basin. Permian Resources’ idea was to combine two successful E&P companies, creating a better, stronger, and more strategically compelling company. Centennial and Colgate announced an agreement to merge in May, denying rumors that Colgate, a privately held independent Midland-based company, had been seeking an IPO. The merger estimated Colgate at about $3.9 billion and consists of 269.3 million shares of Centennial stock, $525 million of cash, and the assumption of approximately $1.4 billion of Colgate’s outstanding net debt. Permian Resources, being the combined company, has a deep inventory of “high-quality” drilling locations on around 180,000 net acres the companies anticipate will provide more than $1 billion of free cash flow in 2023 at current strip prices, in accordance with the company release on Sept. 1.

2022 blog posts